Citigroup Sues Wachovia, Wells Fargo for Interfering in Bank Takeover
October 6, 2008 - 4:06 PMCitigroup Inc. said Monday it has filed a complaint in New York Supreme Court against Wachovia, Wells Fargo and the directors of both companies seeking more than $60 billion in damages for interfering with the bank's planned takeover of Wachovia's banking operations.
The complaint, brought on Saturday and filed Monday, seeks more than $20 billion in compensatory damages and more than $40 billion in punitive damages from San Francisco-based Wells Fargo & Co. for tortious interference. Citigroup also seeks relief from Wachovia for what it called its bad-faith breach of the banks' contract.
"Wachovia continues to believe its agreement with Wells Fargo, which involves no government assistance, is proper and valid," said Wachovia spokeswoman Christy Phillips-Brown in an e-mail to The Associated Press. "The agreement is in the best interests of shareholders, employees, creditors and retirees as well as the American taxpayers, and it imposes no risk to the FDIC fund."
A representative from Wells Fargo was not immediately available for comment.
Meanwhile, Federal Reserve officials have been in talks with Wells Fargo and Citigroup in the hope of getting the parties to come to some sort of agreement, according to a person with knowledge of the talks. The person spoke on condition of anonymity because of the sensitive nature of the matter.
The Wall Street Journal reported Monday that the discussions could result in the two suitors carving up Wachovia Corp.'s network of 3,346 branches along geographic lines, citing people familiar with the situation.
Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., in response to a question from an audience member at the National Association for Business Economists conference about the fate of Wachovia, said: "I think we will have one (resolution) today" that is in accord with the public interest. She did not elaborate.
Early last week, Citigroup Inc. agreed to buy Wachovia's banking assets for $2.1 billion in a deal brokered by the FDIC. In a surprising twist of events, Wells Fargo announced Friday that it agreed to acquire Wachovia in a deal worth $15.1 billion at the time, or $14.8 billion based on Wells Fargo's closing price Friday of $34.56. Wells Fargo's deal did not require any government support.
"This was always a deal Citi wanted rather than one we needed," Citigroup said in a statement Monday. "We were and remain very excited about this transaction and how it will benefit the clients and shareholders of Citi and Wachovia, as well as help preserve the stability of the financial system."
In an additional statement, Citigroup said it delivered an "executed copy" of its agreement with Wachovia to Wachovia's counsel late Sunday. At the time the Wachovia-Wells Fargo deal was announced, Citigroup and Wachovia had agreed and were simply finalizing documents, Citigroup said.
The battle between Wells Fargo and Citigroup for Charlotte, N.C.-based Wachovia moved to court over the weekend.
On Sunday, the Appellate Division of the New York State Supreme Court dismissed an order issued late Saturday by Justice Charles Ramos at Citigroup's request that would have extended the time Citigroup had to complete its acquisition of Wachovia.
The fight was also waged in federal court, where Wachovia asked U.S. District Judge John Koeltl to declare invalid part of the Citigroup deal that would have restricted Wachovia from considering competing bids.
Also Sunday, a county court in North Carolina ruled against Citigroup in its battle for Wachovia. The Superior Court Division of Mecklenburg County General Court of Justice in North Carolina issued a temporary restraining order on behalf of two Wachovia shareholders prohibiting Citigroup from enforcing provisions of its takeover bid of Wachovia. The provisions restrict Wachovia's ability to negotiate other potential deals.
Wachovia said it believes the temporary restraining order "precludes Citigroup from acting further to enforce the exclusivity provision that is the subject of its verified complaint filed by Citigroup today in New York State Court. Citigroup's action appears to be in violation of the North Carolina court order."
The litigation may be eclipsed by some sort of compromise or deal, said Carl Tobias, a professor at the University of Richmond School of Law.
All of the parties involved have stressed the urgency of resolving the battle, as a prolonged court fight could further weaken the ailing Wachovia.
"If this goes into a protracted legal battle, everybody loses," said Frederick Cannon, an analyst at Keefe, Bruyette & Woods in an interview with The Associated Press. "Wachovia is big enough that it would be a negative for the financial system. Given that situation, we will see a resolution pretty quickly."
Roger Cominsky, a partner in the financial institutions and lending group at the law firm Hiscock & Barclay, added that the eventual buyer will want the deal done as fast as possible to preserve the highest value of Wachovia, while the FDIC wants to avoid a potential run on the bank if the fight is drawn out.
Wachovia, like many banks, has been slammed over the past year by defaulting mortgages, particularly in its portfolio of option adjustable-rate mortgages, which allowed many customers to pay less than the monthly interest owed on the loan.
It was clear from documents filed in federal court Sunday that Wachovia was in considerable trouble when it agreed to the Citigroup deal. Wachovia disclosed that it agreed to the deal "with the understanding that a seizure of its banking assets later that day by the Federal Deposit Insurance Corp. would occur" unless it accepted Citigroup's proposal.
Wachovia shares dropped 36 cents, or 5.8 percent, to $5.85 in afternoon trading. Citigroup shares fell 63 cents, or 3.4 percent, to $17.72, while Wells Fargo shares slipped $1.92, or 5.6 percent, to $32.64.
AP Business Writers Marcy Gordon in Washington, D.C., and Stephen Bernard in New York contributed to this story.
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